Pension reform can't wait for economy to pick up

Given all his other troubles, it would be convenient for federal Finance Minister Jim Flaherty if his recent assessment that all is essentially well with Canada’s pension system was correct.

That would mean that he could safely ignore the issue and concentrate instead on taming the record deficit his government is running and the need to get Canada’s economy rolling again.

Unfortunately, the report prepared by the ponderously named provincial-territorial Committee of Ministers on Pension Coverage and Retirement Income Adequacy tells a different story.

The report recently released by B.C. Finance Minister Colins Hansen, the committee chair, suggests that while for the most part current retirees are doing well, a growing number of Canadians still in the workforce face a leaner future.

Flaherty made his comments after a meeting of finance ministers in Whitehorse in December. They were echoed by Ontario’s finance minister, who faces a gargantuan revenue shortfall of his own, and who would also prefer the pension issue be considered as one with no particular urgency attached.

The ministers agreed to study the issue further in an effort to find a single-national solution rather than push for urgent action.

Now Hansen is musing that it’s just as well that we’re not ready to launch a new pension plan now because of the slowdown in the economy.

Hansen told Canwest reporter Norma Greenaway this week that employers already struggling to survive may not be that enthusiastic about taking on new payroll costs.

That may be true, but using that reluctance as a basis for a go-slow approach would be a mistake. The need for pension reform in Canada is urgent for the same reason that financial advisers urge individuals to start saving now for their retirement. The longer we wait, the harder it gets.

And rather than just being an expense, some of the proposed reforms would be a boon for smaller employers, who would be able to offer competitive pension benefits without incurring exorbitant management costs.

The problem, as outlined in a the steering committee and other recent reports, is that private pensions are disappearing and the public system is not comprehensive enough to take up the slack.

Canadians depend on what is known as three pillars to support us in retirement.

The first is the taxpayer-supported payments — Old Age Security and the Guaranteed Income Supplement — that get clawed back from people who have adequate income from other sources.

The second are the government-run pension plans, the CPP and QPP, to which employees and employers make mandatory contributions and, along with the first pillar, are designed to replace 40 per cent of pre-retirement income up to the national average wage, which was $46,300 in 2009.

The problem is that people are not taking full advantage of tax-sheltered savings, which is not surprising given that, as does Flaherty, most of us have other needs and wants competing for our available income.

And private-sector pension plans are disappearing. Just one in four people working in the private sector is now covered by a company pension plan.

To their credit, B.C. and Alberta have taken the lead in addressing this issue, which is likely to get worse if as expected the notion of a career increasingly means changing jobs several times rather than staying with a single employer or industry.

The two provinces have been considering pushing ahead with a defined-contribution plan that small businesses or even individuals would be able to join.

It would work somewhat like an RSP, but with the benefits that flow from size, lower management fees, less risk and the ability to take on a wider range of investments, among others.

The B.C.-Alberta plan is now on the back burner while other national options are considered. Among them are an expansion of the Canada Pension Plan, which would require employees and employers to contribute more but would result in larger payouts. As was done in the 1990s when the Canada Pension Plan was reinforced with higher contributions, increases will have to be phased in.

Another proposal calls for a voluntary supplemental plan.

One thing to remember in all this is that while it may seem unfair to try to force people to save for retirement, inadequate retirement income is not just an issue for individuals and families that come up short.

When someone retires without the means to support themselves, the next generation of taxpayers has to pick up the slack.

Many of our social benefits are income-based, including healthcare premiums, fees charged for drugs, assisted living and nursing homes.

So, while a sluggish economy may not seem like the best time to launch a new pension plan, there will never be a better time than now to get started.